Pro Medicus Ltd (ASX: PME) shares have started the week in the red, down 0.57% to $306.13 at the time of writing.
This radiology software company has become an undisputed ASX 200 healthcare sector darling in recent times.
Pro Medicus has delivered seemingly unstoppable share price growth over the past three years. About 550% growth, in fact.
Just take a look at this.
The Pro Medicus share price cracked the $300 mark last week and rose to a record high of $316.47 on Thursday.
That happened after the company announced two more contract wins in the US.
Pro Medicus provides cloud-based radiology software to major hospitals across the US, Europe, and Australia.
As my colleague James explains, Pro Medicus has high margins, zero debt, a sticky client base, and strong earnings growth.
Pro Medicus was No. 2 of the 5 best-performing ASX 200 healthcare shares last financial year, with 99% share price growth.
So, where to from here for this ASX 200 healthcare juggernaut?
Image source: Getty Images
Have you missed the boat on Pro Medicus shares?
In a new note, top broker Morgans says "the math ain't mathing" on Pro Medicus stock.
Morgans said the new contracts meant Pro Medicus had already achieved about 40% of the broker's new contract win assumptions for FY26.
The broker commented:
The key difference in the new contract is the inclusion of PME's new cardiology product, however it remains unclear how much this new product contributes to the baseline contract size.
Still, it's hard to fathom an increase in the rate of growth of recent years continuing with a mathematically diminishing number of these large contract opportunities left in the pipeline.
The broker said the new contracts announcement was impressive, but it's concerned about the valuation of Pro Medicus shares now.
Morgans said: "… valuation is still too sharp to chase hard."
The broker raised its valuation from $250 per share to $280 after considering the impact of the new contracts.
Given this valuation is about 8.5% lower than where Pro Medicus shares are trading today, the broker has retained a trim recommendation.
What about other brokers?
Bell Potter downgraded Pro Medicus from a buy to a hold rating last week, with an improved price target of $320, up from $280.
Like Morgans, Bell Potter also acknowledged the significance of Pro Medicus's new cardiology product, Visage 7 Cardiology, being included in the larger of the two new contracts.
The broker said:
The drivers of the uptake of the Visage system remain firmly in place. Swift deployment, radiologist shortages, upload speed and sensational visualisation are the key selling elements.
Very pleasing to see the second deployment announced for the cardiology system as well.
Looking ahead, Bell Potter is also concerned about runaway share price growth. This is the primary reason behind the lowered rating.
The broker explained:
The strong earnings growth is likely to continue in the medium term and sustain the current share price, subject to bouts of volatility driven by macro events. The PME implementation team have a full schedule in the coming quarters … and for this reason the company is unlikely to capture more than one quarter of exam revenues from U. Colorado in FY26.
Revenues are increased by ~3% in FY26. Earnings increases are negligible. PT is increased to $320, recommendation is downgraded to Hold from Buy based on movement in valuation.
Another top broker, Morgan Stanley, has an overweight rating on Pro Medicus but considers the current share price almost fully valued.
Morgan Stanley has a 12-month price target of $310 on the stock.
